If your trade business pays for benefits that employees (including yourself as a director) use privately — a work car that also does school runs, a phone that handles personal calls, tickets to a game — the ATO may apply Fringe Benefits Tax (FBT).

FBT is one of the most misunderstood taxes in Australia, and for small trade businesses it's often either ignored entirely (risky) or over-applied in ways that unnecessarily restrict legitimate expense claims. This guide explains how FBT applies to trade businesses, what triggers it, and how to structure your benefits to stay compliant without paying more tax than you need to.

What Is Fringe Benefits Tax?

Fringe Benefits Tax is a tax paid by employers on non-cash benefits provided to employees or their associates. It's separate from income tax and is calculated differently.

The FBT year runs from 1 April to 31 March — not the standard July-to-June financial year. The current FBT rate is 47% (aligned to the top marginal income tax rate) applied to the "grossed-up" value of the benefit.

Who pays FBT? The employer pays it — not the employee. If your company provides a car to yourself as a director, the company pays FBT on the benefit. If you're a sole trader providing benefits to yourself, FBT generally doesn't apply (you can't employ yourself as a sole trader).

This is an important distinction: FBT applies in company and trust structures where there's an employer-employee relationship. For most sole traders, FBT is not relevant to personal benefits because there's no employment relationship with yourself.

When Does FBT Apply to Trade Businesses?

FBT is triggered when your business (as an employer) provides a benefit that has a private use component to:

  • Your employees (including apprentices or trade staff)
  • Yourself as a director/employee of your own company
  • Associates of employees (spouses, family members)

Common FBT triggers in trade businesses:

  • A company-owned vehicle used for private driving
  • Personal phone bills paid by the company
  • Entertainment expenses (meals, tickets, events)
  • Gym memberships
  • Private health insurance paid by the employer
  • Residential parking provided by the employer
  • Laptops, tablets, or tech primarily used personally

Not every benefit is subject to FBT — there are many exemptions that are particularly relevant to tradies.

Cars and Vehicles: The Biggest FBT Issue for Tradies

If your company owns a ute or van that you also use for private purposes (driving to the supermarket, family trips, personal errands), the private use component can be a fringe benefit subject to FBT.

However, there's a critical exemption for tradies.

Certain work vehicles are exempt from FBT on private use, provided specific conditions are met. This is the rule most tradies can benefit from.

The exemption applies to:

  • Panel vans and utes that are not designed principally for private use
  • Vehicles designed to carry a load of one tonne or more
  • Vehicles designed to carry 9 or more passengers

For these vehicles, private use is exempt from FBT if it is:

  1. Travel between home and work
  2. Minor, infrequent, and irregular private travel (stopping at the shops on the way home, for example)

The key word is "minor." The ATO accepts that a tradie's ute will occasionally be used for a quick personal errand. What's not acceptable is using the work ute as the family's weekend car, for school runs, or for holidays.

Practical result for most tradies: If your company-owned ute or van is a commercial vehicle (1+ tonne load capacity) and you use it primarily for work — with only minor, occasional private trips — you likely have no FBT liability on the vehicle.

If you drive a dual-cab ute that's used as the family car 30% of the time, you have an FBT issue to manage.

If Your Vehicle Is Subject to FBT

If the private use is more than "minor," you need to calculate and pay FBT. Two methods apply to cars:

1. Statutory Formula Method

  • FBT is calculated as: (cost of car × 20%) × fraction of year benefit was available × gross-up factor
  • The 20% statutory rate applies regardless of actual private use
  • Simple but potentially higher cost

2. Operating Cost Method

  • FBT is calculated on the actual private use percentage of total running costs
  • Requires a logbook maintained for at least 12 weeks
  • If your private use is genuinely low (say, 15%), this method produces a lower FBT liability
  • More record-keeping but often cheaper

For vehicles with significant private use, the operating cost method with a genuine logbook almost always produces a lower FBT bill.

Phones and Electronic Devices

The ATO provides an exemption for "work-related items" that is particularly valuable for business owners and employees. Under this exemption, the following are exempt from FBT when primarily used for work:

  • Portable electronic devices (phones, laptops, tablets)
  • Computer software
  • Protective clothing
  • Briefcases and tools of trade

The exemption allows one device per employee per FBT year where the device has an identical or similar function. If an employee receives two laptops, only one qualifies.

For tradies: Your company phone and laptop are almost certainly FBT-exempt because they're primarily work-related. No FBT is triggered even if there's some personal use, provided work use is the primary purpose.

Caution: If the phone or device is clearly primarily personal — an employee receiving an iPhone with a corporate-paid plan they barely use for work — the exemption may not apply.

The Minor Benefits Exemption

Benefits with a GST-inclusive value of $300 or less that are provided infrequently (not regularly repeated) may qualify for the minor benefits exemption. No FBT applies.

This commonly applies to:

  • Occasional restaurant meals (under $300 per occasion)
  • Small gifts to employees (Christmas gift under $300)
  • Staff training costs under $300
  • Occasional theatre or sporting event tickets

Christmas party tip: A Christmas party for employees and their partners at a restaurant, costing $280 per head (GST-inclusive), qualifies for the minor benefits exemption — no FBT. If the cost is $310 per head, the exemption doesn't apply and the full amount becomes subject to FBT. This is why many small businesses keep per-head costs under $300.

FBT and Sole Traders

If you're a sole trader, FBT does not apply to benefits you provide to yourself. You are not an employee of your own business — you're the business. Private use of your ute, paying your phone bill through the business, covering your own health insurance — these aren't FBT-liable.

However, they may still not be deductible as business expenses if they're personal in nature. The ATO allows deductions only for business-related costs.

Where sole traders can face issues:

  • Providing benefits to employees — an apprentice who uses a company phone personally triggers FBT for you as the employer
  • FBT on benefits to working spouses — if your spouse works in the business and receives non-cash benefits, those may attract FBT

Entertainment: The Most Misunderstood FBT Area

Taking clients to a footy game? Friday afternoon beers for the team? Business lunches?

Entertainment expenses are subject to FBT rules, but the rules are often misapplied.

What Is "Entertainment"?

The ATO defines entertainment as food, drink, recreation, and accommodation provided in connection with entertainment. Importantly, entertainment expenses are generally:

  • Not income tax deductible (unless FBT is paid)
  • Subject to FBT when provided to employees
  • Not subject to FBT when provided to external clients (but also not deductible)

Client Entertainment vs Employee Entertainment

  • Taking a client to dinner — No FBT — Not deductible
  • Taking an employee to dinner — Yes FBT (unless minor benefit) — Deductible (if FBT paid)
  • Work Christmas party (staff + clients) — Split — staff portion may attract FBT — Partially deductible
  • Staff morning tea in-house — Likely exempt (in-house) — Deductible

The practical outcome for most small tradie businesses: unless you're regularly providing significant entertainment benefits to employees, the FBT exposure is limited. Occasional celebrations are covered by the minor benefits exemption.

FBT Returns and Lodgement

If your business has an FBT liability, you must:

  1. Register for FBT with the ATO
  2. Lodge an FBT return for the year ending 31 March
  3. Pay any FBT liability by 21 May (or later if lodging through a tax agent)

FBT is not reported on your BAS — it has its own return.

If your FBT liability for the year is $3,000 or less, you may be able to lodge a "no return required" confirmation rather than a full FBT return. However, most businesses with company vehicles will exceed this threshold quickly.

Reducing Your FBT: Practical Strategies

1. Keep the Ute Commercial and Work-Focused

Ensure your company vehicle qualifies for the work-related vehicle exemption by:

  • Using a genuine commercial ute (1+ tonne payload)
  • Restricting private use to home-to-work commutes and minor, irregular errands
  • Documenting the vehicle's primary work purpose

2. Use Employee Contributions

Employees (including directors) can make a post-tax contribution toward the cost of a benefit, reducing the FBT liability. For a vehicle with some private use, having the employee pay for the private use portion (based on a cents-per-km or percentage split) eliminates or reduces the FBT.

3. Maintain a Vehicle Logbook

Under the operating cost method, a proper logbook demonstrates your actual private use percentage. If genuine private use is low, this can dramatically reduce FBT compared to the 20% statutory formula.

4. Structure Phones and Devices Correctly

Ensure devices provided to employees (and yourself as director) are primarily work-related to qualify for the work-related device exemption. Document the work purpose.

5. Keep Entertainment Costs Under the Minor Benefit Threshold

Structure employee entertainment (team meals, celebrations) to stay under $300 per head to qualify for the minor benefits exemption.

Comparison: Common Benefits and FBT Treatment

  • Commercial ute (1+ tonne) — Exempt from private use — Minor, irregular private use only
  • Passenger car with private use — Yes — Calculate via logbook or statutory formula
  • Work phone (primarily for work) — Exempt — Work-related use is primary purpose
  • Second phone (primarily personal) — Yes — Not primarily work-related
  • Laptop (primarily for work) — Exempt — One device per employee per year
  • Gym membership — Yes — No work-related exemption
  • Private health insurance — Yes (as employer contribution) — No specific exemption
  • Christmas party under $300/head — Exempt — Minor benefit threshold
  • Christmas party over $300/head — Yes — Whole benefit becomes taxable
  • Tool allowance — Generally not FBT — Not a fringe benefit (it's income)

Frequently Asked Questions

Q: My company pays my private health insurance — do I pay FBT?
Yes. Private health insurance paid by the employer is a fringe benefit and attracts FBT. Some employers structure this as additional salary so the employee can salary-sacrifice, but for a small trade company where you're both director and employee, it's generally simpler to receive additional salary and pay the premium personally.

Q: Does FBT affect my company's income tax?
Yes, in a positive way. FBT paid is deductible for income tax purposes. So while you pay FBT, the deduction partially offsets the cost. The net FBT cost is reduced by the company tax saving.

Q: Can I salary sacrifice my car to avoid FBT?
Novated leases (salary sacrifice) can make car benefits more tax-effective, but FBT still applies on the private use component. The difference is that the after-tax cost to the employee is often lower than buying the car personally. For a tradie director, discuss novated lease vs company car ownership with your accountant.

Q: We had a work function that cost more than $300 per head — what do we do?
The FBT bill has potentially been triggered. Your accountant can calculate the FBT liability for that event and include it in your FBT return. For next year's function, keep per-head costs under $300 to stay in the minor benefits exemption.

Q: I'm a sole trader with no employees — do I need to worry about FBT at all?
No. FBT doesn't apply to sole traders in relation to themselves. If you have employees, FBT applies to benefits you provide to them, but not to yourself.